Making a House a Home, and Solving Britain’s Manipulated Housing Crisis

21 February 2018

by Stefan Zylinski

Take a walk through Kensington & Chelsea, London, and likelihood is you’ll pass a house that stands empty. It will be among 1,399 in the borough, and 20,000 across London that are unoccupied. Around Britain, 200,000 homes have been empty for at least 6 months, and more then 11,000 for over a decade.

Some might be caught in legal disputes, others needing repairs. But for the rest, they’re empty because they’re owned as financial assets. Their owners range from multimillionaire tycoons, foreign princes, and private equity firms, to property-owning Brits who’ve re-mortgaged their first home to purchase another. And in the search for good returns, they’ve all come to the British housing market.

This is happening as Britain undergoes a crisis of housing and homelessness. Reports show that 1.2 million people are waiting on housing lists in England and more than 300,000 are sleeping rough, or living in temporary housing, bed and breakfasts or hostels. And such figures will only rise in the coming years.

When it comes to empty homes, councils have the power to act. After six months of being empty, they can take a house back under local ownership or force a sale. But the councils doing so are too few; only 1/13 have used this power. This is unsurprising - between 2010-15, council budgets fell by 51%.

While such empty homes are a starting point though, the causes of the housing crisis are complex. On the supply-side, issues of land use, the quality of existing stock and the quantity of homes available certainly need addressing. But issues around income are important too - pressures on living standards and the insecurity of the labour market have made it harder for many to afford the homes they live in.

For most people in Britain, their home is their biggest asset

At the same time, the role of residential property itself has changed. As the global economy has liberalised in recent years, the housing market has been increasingly commodified. Now more then ever, homes are valued as a means of exchange – that is, for the accumulation of wealth – rather then to live in. Residential property is now the world’s biggest asset class (at $200 trillion), more then three times that of publicly traded stocks.

The housing market is the engine room of the economy. But as economies have liberalised, the importance of the housing market has deepened. We can see this in two dynamics.

For most people in Britain, their home is their biggest asset. If the price of your house goes up, this boosts your wealth; this enables you to re-mortgage your home to increase consumer spending, feeding positively into economic growth.

Housing markets play an important role in the financial system too. In Britain, 75% of bank lending is for property. If house prices fall, this negatively affects bank balance sheets, when the government has been trying to recapitalise banks for the sake of economic stability and growth.

Beyond the centrality of the housing market, such processes reveal a twin motivation here – that is, to keep house prices high and increasing.

And this is what we’ve seen; since 2000, British house prices have increased by 82%. They’ve done so because demand for housing vastly outstrips supply. Despite the rhetoric of reform, the supply of housing is kept low and high rates of investment in residential property are encouraged. Together, this artificially pumps up the housing market and economy, encouraging economic growth where it was lacking and improving bank balance sheets where they’ve needed recapitalisation.

austerity has a fundamentally negative effect on economic growth

In short, this amounts to a severe conflict of interest for the British government. But if such claims are to promote more then a conspiratorial sense of unease, we need significant cause for motivation. Why would the British government want this, given the drastic need for homes in British society? And why would they need to artificially boost the economy?

The motivation is clear. Since 2010, the British government has sought to reduce national debt and spending through its programme of ‘austerity’. These reforms are set to continue well into the 2020s, making Britain’s one of the most severe programs in Europe, behind only Greece. Even countries such as Portugal (who received an EU bailout), are easing their austerity programmes.

And austerity has a fundamentally negative effect on economic growth. Cutting government spending depresses economic activity as unemployment increases and consumption falls. There are arguments that the private sector will fill the gap. And we see some of this, but its not enough.

The economic effects of artificially forcing up house prices help to counteract the negative growth effects of austerity. This implies – either by tacit approval, or explicit choice – not just a conflict, but a subtle manipulation of the housing market and economy. Because by doing so, this provides the legitimacy for the Conservative government to continue its ideological shrinking of the welfare state.

The housing market is the engine room of the economy, and it is precisely its centrality to the economy that makes it such an excellent tool of manipulation.

Of course, this is not the sort of policy choice you find in a report or brief, or a politician makes a public announcement of. But there is a reliance on the housing market here. And it is only dangerous. It means putting trust in asset price bubbles to be our engine of growth, while little thought is given to the millions who desperately need a home.

Despite the evident need for urgent change, even if such conflicts were recognised and the deeper causes of the UK housing crisis appreciated, there is no miracle cure.

Yes, there are potential sources of change - whether promoted by a grassroots movement, or waiting for the election of a figure such as Jeremy Corbyn. But for whoever leads, although there are options, the decisions will be complex.

On the supply-side, planning reforms, cracking down on ‘land banking’, or loosening financial restrictions on councils, could see more homes built and empty homes taken back into public ownership. On the demand-side, labour market reforms to improve job security or support incomes might allow rents to become more affordable.

At the same time, restrictions could be applied to those wealthy individuals and financial institutions that buy residential property in this country without ever intending to live in it. Allowing such practises only serves to increase inequalities in a world already straining under the weight.

Any answer in isolation won’t be enough, but whatever the shape of reform such efforts will face significant opposition; by a system structured to generate such inequalities, and by the few that reap the rewards.

Despite the difficulty of the journey, its no longer good enough that politicians can play games with peoples lives, with little or no consequence – whether in the housing market, or any other. Wherever it comes from, the answer must see ownership of Britain’s streets reclaimed. Without this, increasing numbers will suffer the tragedy of housing insecurity and homelessness.

And its only with radical change that we can see the house you walked past – and the thousands of others around the country like it – no longer be just another financial asset, but a home again.

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